New home sales increased 1.3 percent in October

View full sizeThe Associated PressConstruction worker Will Capper heads to work on a new house in Palo Alto, Calif., last week. Americans bought slightly more new homes in October, but the median sales price fell to its lowest level this year. The mixed report suggests the nation's housing market is a long way from recovering.

Americans bought slightly
more new homes in October, a hopeful sign for the troubled housing
market. But the median sales price fell to its lowest level of the year,
and the overall sales pace is trailing last year's — the worst in half a
century.

The report suggests housing continues to drag on the U.S. economy and is a long way from recovering.

New-home
sales increased 1.3 percent last month to a seasonally adjusted annual
rate of 307,000, the Commerce Department said Monday. That's less than
half the 700,000 that economists say must be sold to sustain a healthy
housing market.

September's figures were also revised down significantly to show a weaker pace than first estimated.

Last
year's 323,000 new homes sold were the fewest since the government
began keeping records in 1963. This year isn't faring much better.

While
new homes sales represent a fraction of the housing market, they have
an outsize impact on the economy. Each home built creates an average of
three jobs for a year and generates about $90,000 in tax revenue,
according to the National Association of Home Builders.

Many
builders have stopped working on new projects because they can't obtain
financing. The number of new homes for sale in the United States fell in
October to a record low of 162,000.

They are also struggling to
compete against cheaper re-sales, even as they lower their own prices.
The median sales price of a new home fell 0.4 percent in October from
September, to $212,300.

Steven Wood, chief economist at Insight
Economics, said the small number of new homes for sale should help the
housing market recover quicker when prices begin to rise. But he said:
"A sustained rebound in new home sales appears unlikely."

For many Americans, buying a home is too big a risk more than four years after the housing bubble burst.

Sales are slumping even though mortgage rates are hovering above historic lows.

Yet
sales of previously owned homes are also dismal. They rose slightly
last month to a seasonally adjusted annual rate of 4.97 million units,
the National Association of Realtors said last week. That's below the 6
million that economists say is consistent with sales in a healthy market
and barely ahead of last year's totals, which were the fewest since
1997.

In October, sales were uneven across the country. They
increased 22.2 percent in the Midwest and 14.9 percent in the West. But
they were unchanged in the Northeast and fell 9.5 percent in the South.